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Paper cheque processing to disappear by 2010 - Celent

28 October 2004  |  4464 views  |  0 cheque book

As the Check 21 bill comes into effect in the US today, research by Celent predicts that paper cheque processing will virtually disappear by the end of the decade when more than 93% of cheques will be image-exchanged.

The Check 21 bill allows banks to exchange electronic images of cheques for clearing and settlement purposes.

According to the research, image exchange of transit cheques will grow from more than 14% in 2005 to 61% by 2007. By 2010, more than 93% of cheques will be image-exchanged.

Celent says by 2006 cheque clearing fees will either level with ACH clearing fees or come close enough to justify switching to cheque image exchange. ARC volumes are expected to peak by 2007 at 3.5 billion and then fall to 2.6 billion by 2008.

Alenka Grealish, co-author of the report and manager of the banking group at Celent, says: "Given the sheer volume of cheques and the number of financial institutions involved in the switch to image exchange, the transition period is expected to last at least six years."

But the total volume of cheques presented will fall from 38 billion this year to 24 billion by 2010, and the decline in the number of cheques processed will accelerate over the next two years as cheque conversion takes a bite out of volumes.

Celent says falling cheque volumes will lead to further consolidation among software, hardware and processing outsourcing providers. Dwindling check volumes have already had an adverse impact on the revenues of cheque processing technology vendors, which plummeted from $2.3 billion in 2001 to $1.6 billion in 2004 and will continue to decline to $1.2 billion by 2007.

Gwenn Bezard, senior analyst and report co-author, Celent, says consolidation will benefit a small group of software vendors and top-tier third-party outsourcing providers, with top performers likely to grow their revenues by 5-10 percent annually in the next few years.

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